Watch HowardCohodas Trade Index Options Credit Spreads

[meanreversion]

You lose! Good by.

Yikes, simple spelling error under pressure. Doesn't bode well for your reactions during a "Black Swan" event, eh?

 

[the hare]

Doesn't bode well for your reactions during a "Black Swan" event, eh?

Dont worry, it'll be fine. On the day that the Black Swan event occurs, as if by magic, Howard will of course have significantly reduced his position size. His students will lose 80% of their accounts, Howard will lose 0.08%

Thats how it works in vendor world.

 

[meanreversion]

MR - what remains to be seen, exactly?

Are you saying a total loss is impossible? These are indices we are talking about - they futures markets move when the options markets are closed. It is impossible to guarantee a maximum 30% loss, unless HC is hedging in the futures markets. It's hard to guarantee a 30% max loss when the options markets are open on these relatively thin instruments.

With indices, it's just not possible to 'guarantee' a 30% max loss without introducing futures trades as a hedge.

As 1 full loser will wipe out 30-40 winners, he only needs 3 or 4 full losers per year to wipe out the years profits.

I'm mildly curious to see whether this strategy could be used as an overlay for a trend system. I'm some way from being convinced, but have not completely ruled it out.

 

[counter_violent]

Dont worry, it'll be fine. On the day that the Black Swan event occurs, as if by magic, Howard will of course have significantly reduced his position size. His students will lose 80% of their accounts, Howard will lose 0.08%

Thats how it works in vendor world.

On Friday the 23rd of February, all evening I had a feeling of regret at not having closed my positions.

This feeling did not leave me all that weekend.

On Monday morning, the 26th of February I came in here at 0730 with a mug of tea and sat down and waited for the market to open.

When it opened, to my surprise, it did so at the level of the close of Friday. Usually the first hour of the first session of the week involves some activity, but on this occasion...none...dead flat.

I was able to close all of them for a profit of £322 less than I would have made had I closed them on the Friday. I never posted this because ........

 

[DionysusToast]

I'm mildly curious to see whether this strategy could be used as an overlay for a trend system. I'm some way from being convinced, but have not completely ruled it out.

Of course, having a bias changes the game completely.

Still it's a lot of risk for the reward and so if you had a bias you could rely on, then you'd probably be better off trading an outright. Unless of course your bias is non directional - it is a bias toward a certain volatility profile.

 

[HowardCohodas]

HC isn't selling outright options though, he's selling spreads where the losses are capped. In addition, he believes his loss will never be greater than 30% of the max loss. This is the crux of the strategy, and it remains to be seen how this pans out.

Let's postulate the following allocation of funds in an account devoted exclusively to trading my methods:
20% cash

Because most spreads are pared with another by forming Iron Condors when possible
40% at risk in CALL credit spreads
40% at risk in PUT credit spreads

A severe market event would negatively effect only one set of credit spreads. I've discussed both the 30% scenario and the 100% scenario, so my planning takes into account both. One of the things they both both have in common is that when one set of spreads is at or beyond the 30% loss, the other set of credit spreads will be near their maximum profit at the same time. This does mitigate some of the losses.

Would even a 100%-type sever event wipe out an account configured in this way?

Are three or four severe events per year, as some have postulated in this thread, a reasonable way to evaluate the survivability of an account configured in this way?

Would it take 30 to 40 new winners to recover from the losses incurred by a 100%-type sever event, as some have postulated in this thread, when the average winning spread yields 6.1% with 93% winners and the average winning Iron Condor yields 20.3% with 94% winners based on my trading to date?

One simplification I have intentionally made here is that the allocated funds are not always equally distributed between CALL spreads and PUT spreads because of my entry rules. And I have not considered investments outside of this account.

 

[arabianights]

MR - what remains to be seen, exactly?

Are you saying a total loss is impossible? These are indices we are talking about - they futures markets move when the options markets are closed. It is impossible to guarantee a maximum 30% loss, unless HC is hedging in the futures markets. It's hard to guarantee a 30% max loss when the options markets are open on these relatively thin instruments.

With indices, it's just not possible to 'guarantee' a 30% max loss without introducing futures trades as a hedge.

As 1 full loser will wipe out 30-40 winners, he only needs 3 or 4 full losers per year to wipe out the years profits.

This is all that needs to be said, really. Well, that and if there is 1 loser the other 2 or 3 are very likely to happen at the same time.

 

[RPEX]

Let's postulate the following allocation of funds in an account devoted exclusively to trading my methods:
20% cash

Because most spreads are pared with another by forming Iron Condors when possible
40% at risk in CALL credit spreads
40% at risk in PUT credit spreads

A severe market event would negatively effect only one set of credit spreads. I've discussed both the 30% scenario and the 100% scenario, so my planning takes into account both. One of the things they both both have in common is that when one set of spreads is at or beyond the 30% loss, the other set of credit spreads will be near their maximum profit at the same time. This does mitigate some of the losses.

The problem i see is that you haven't specified the premium you collect from the side that "wins", which will depend on timing etc. so you can't guarantee that the max loss of 40% on the loser will be partially offset. Just say your maximum risk is 40% of the account size.

As you have set it out the risk implies nothing about the reward, so as far as i know maybe it does take 30-40 winners to make up for the 40% of account equity loss, who knows.

 

[meanreversion]

This is all that needs to be said, really. Well, that and if there is 1 loser the other 2 or 3 are very likely to happen at the same time.

In addition, if there are 2-3 losers in a row, does the strategy remain the same? So let's say the starting pot was $100k (for example), and at some point it's up to $150k, but then wham bam it gets nuked to $50k, what next?

 

[meanreversion]

This thread has gotten boring again, where's Pazienza for a bit of lulz ??

 

[meanreversion]

http://www.theoptionseller.com/

Ha, this contains one of the biggest canards about options, viz. most of them expire out of the money. Therefore, consistently selling options will make money over time, right?

 

[meanreversion]

"While there are dozens of books on the subject of selling options none offer you such detailed step by step description of the option selling process as does STOCK OPTIONS: THE GREATEST WEALTH BUILDING TOOL EVER INVENTED. This e-book will make you an option seller and enable you to grow your capital steadily at returns of 30% to 60% annually, or you can use the system to generate a very decent second source of income."

Easy money!! Come and get it!

 

[arabianights]

http://www.theoptionseller.com/

Ha, this contains one of the biggest canards about options, viz. most of them expire out of the money. Therefore, consistently selling options will make money over time, right?

That site is hilarious

 

[DionysusToast]

Let's postulate the following allocation of funds in an account devoted exclusively to trading my methods:
20% cash

Because most spreads are pared with another by forming Iron Condors when possible
40% at risk in CALL credit spreads
40% at risk in PUT credit spreads

A severe market event would negatively effect only one set of credit spreads. I've discussed both the 30% scenario and the 100% scenario, so my planning takes into account both. One of the things they both both have in common is that when one set of spreads is at or beyond the 30% loss, the other set of credit spreads will be near their maximum profit at the same time. This does mitigate some of the losses.

Would even a 100%-type sever event wipe out an account configured in this way?

Are three or four severe events per year, as some have postulated in this thread, a reasonable way to evaluate the survivability of an account configured in this way?

Would it take 30 to 40 new winners to recover from the losses incurred by a 100%-type sever event, as some have postulated in this thread, when the average winning spread yields 6.1% with 93% winners and the average winning Iron Condor yields 20.3% with 94% winners based on my trading to date?

One simplification I have intentionally made here is that the allocated funds are not always equally distributed between CALL spreads and PUT spreads because of my entry rules. And I have not considered investments outside of this account.

Howard - how does an IC yield 20% exactly?

you have 2 spreads each side of the price. Both could go wrong at different times. This could occur on consecutive days. Both spreads contain risk.

I would guess your 20% works like this.

Risk $10 one side, Risk $10 the other side. Yield $2. Presume only 1 side is at risk. Therefore risk is only $10 and return is 20% of risk.

This is of course presuming zero rolling costs & zero fees.

You do this, yet claim NOT to be fudging the numbers...

You show .80c reward for a $25 risk. Forget that the 80c is really 78c when you figure in commissions. Forget the 78c may become 70cents when you roll it & STILL claim that you are averaging 6.1%.

Let's not also forget that your 'make up' trades will also all incur comissions.

 

[HowardCohodas]

The problem i see is that you haven't specified the premium you collect from the side that "wins", which will depend on timing etc. so you can't guarantee that the max loss of 40% on the loser will be partially offset. Just say your maximum risk is 40% of the account size.

As you have set it out the risk implies nothing about the reward, so as far as i know maybe it does take 30-40 winners to make up for the 40% of account equity loss, who knows.

I'm unclear here. Doesn't the statistic I cited of average yield and probability of success tell you what you need to know?

 

[HowardCohodas]

This is all that needs to be said, really. Well, that and if there is 1 loser the other 2 or 3 are very likely to happen at the same time.

Only if you find the premise corresponds with anything I've said. Otherwise, it's nonsense.

 

[scose-no-doubt]

You guys still arguing over Howards hypothetical risk:reward and the academics of probability of losses? Why cant we get back to the interesting stuff about skews and vol that Martinghoul was discussing and leave the rest of this sh1t until Howards actually suffers losses? How many pages have there now been of people telling Howard he's going to lose? It's old now.

And to be fair to Howard he does answer questions when they are asked but he doesn't repeat himself so if your question has been asked before and you think Howard is being evasive tough 5ht. Go and look.

 

[arabianights]

You guys still arguing over Howards hypothetical risk:reward and the academics of probability of losses? Why cant we get back to the interesting stuff about skews and vol that Martinghoul was discussing and leave the rest of this sh1t until Howards actually suffers losses? How many pages have there now been of people telling Howard he's going to lose? It's old now.

And to be fair to Howard he does answer questions when they are asked but he doesn't repeat himself so if your question has been asked before and you think Howard is being evasive tough 5ht. Go and look.

This is called being results oriented, and is stupid.

 

[meanreversion]

This thread is past its sell-by date. I think the number of external comments should be limited to 10 a day and we let him get on with it.

 

[HowardCohodas]

In addition, if there are 2-3 losers in a row, does the strategy remain the same? So let's say the starting pot was $100k (for example), and at some point it's up to $150k, but then wham bam it gets nuked to $50k, what next?

Wow! 2 to 3 sever market moves in a row, causing the account to lose 40% each time. I just can't recall that ever happening in the market. I suppose it could, but I'd still have 54% of my initial investment if two in a row happened. 32% if three in a row. Three in a row and I'd likely give it up.